Around $3bn is expected to be wiped off legendary investor Warren Buffett’s holding firm Berkshire Hathaway later today after Kraft Heinz revealed an accounting investigation and $15.4bn write-down amid other issues.

Buffett owns a 26.7% stake in Kraft Heinz via Berkshire Hathaway, which itself reports results on Friday. Global investment firm 3G Capital, which has a history of partnering up with Berkshire Hathaway, owns a 22.1% stake in the Heinz beans brand owner.

Following the release of Kraft Heinz’s shocking annual results after the US stock markets closed, the market value of the firm is expected to fall by $12.1bn, leaving the market value at $46.6bn.

Before the announcement on Thursday evening, Kraft Heinz was valued at $58.7bn based on a share price of $48.18.

Over the last year, shares in the company have been on a downward spiral as cost cutting and price reductions are being used to try and revive sales growth.

WHAT HAS GONE WRONG?

Kraft Heinz has recorded a $25m rise in costs for ingredients and other expenses that should have been recorded in previous quarters by its procurement arm amid an investigation by the US Securities and Exchange Commission into its accounting policies.

This is not the only issue as Kraft Heinz revealed non-cash impairment charges of $15.4bn after writing down the value of assets including the Kraft and Oscar Mayer brands.

Kraft Heinz has also struggled as unanticipated cost inflation and lower than planned savings meant profitability ‘fell short of expectations’ according to chief executive Bernardo Hees.

One of the biggest attractions of the merger between Kraft and Heinz in 2015 was cost savings and efficiencies.

Investors will also be disappointed to see that the fourth quarter dividend has been cut by 35.4% from $0.62c to $0.4c per share to shore up the balance sheet and support commercial investments.

Back in 2010, Kraft (prior to its merger with Heinz) dominated headlines in the UK after buying chocolate brand Cadbury, in what many saw as a bargain-basement price,  and once again found the spotlight with an ultimately failed takeover of Unilever (ULVR) in 2017.


Issue Date: 22 Feb 2019